Citigroup Inc. is in talks with federal officials that could result in the U.S. government substantially expanding its ownership of the struggling bank, according to people familiar with the situation, according to the Wall Street Journal .
While the discussions could fall apart, the government could wind up holding as much as 40% of Citigroup's common stock. Bank executives hope the stake will be closer to 25%, these people said.
Any such move would give federal officials far greater influence over one of the world's largest financial institutions. Citigroup has proposed the plan to its regulators. The Obama administration hasn't indicated if it supports the plan, according to people with knowledge of the talks.
When federal officials began pumping capital into U.S. banks last October, few experts would have predicted that the government would soon be wrestling with the possibility of taking voting control of large financial institutions. The potential move at Citigroup would give the government its biggest ownership of a financial-services company since the September bailout of insurer American International Group Inc., which left taxpayers with an 80% stake.
European leaders have agreed on draconian measures to crack down on hedge funds, rating agencies and all financial instruments, going beyond proposals by Prime Minister Gordon Brown for soft regulation designed to avoid stifling free enterprise, reports The Telegraph.
The move to regulate hedge funds poses a potential threat to an industry that has been a mainstay of London's financial growth over the last decade. The only restriction imposed so far is an obligation to disclose all "short" positions on equities.
German Chancellor Angela Merkel, who hosted yesterday's summit of German, French, Italian, Spanish, Dutch and British leaders in Berlin, said the sort of rampant speculation and misuse of leverage that occurred in the credit bubble would not be tolerated.
"We have today underscored our conviction that all financial markets, products and participants must be subject to appropriate oversight or regulation, without exception and regardless of their country of domicile. This is especially true for those private pools of capital, including hedge funds, that may present a systemic risk," she said.
Royal Bank of Scotland will embark this week on a radical plan to split itself in two as it cuts tens of thousands of staff across the globe and confirms the biggest annual loss in British corporate history, according to The Times.
The split, into elements to be retained and those to be sold, comes as Stephen Hester, the chief executive of RBS, and Eric Daniels, his counterpart at Lloyds Banking Group, go to the Treasury today to agree terms for their banks' entry into the Government's insurance scheme for toxic assets.
Treasury officials met yesterday to decide what conditions they would impose on banks in exchange for entry into the programme, potentially including ordering them to lend.
RBS, which is 68 per cent owned by the taxpayer, and Lloyds, 43 per cent held by the state, are each thought to want between £200 billion and £250 billion of assets to be covered.IFAonline
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